Christian Schulte, Steinbeis expert on corporate finance and investments, joins Dr. Rolf Weilenmann, director of Corporate Finance at Helvetische Bank for an interview
For more than a decade, the Steinbeis Consulting Center for Corporate Finance and Investments has been supporting high-tier medium-sized companies with financing through banks. In addition to direct institutional debt financing, another important and interesting source of loan capital for companies is to issue bonds. German companies that issue bonds enjoy a variety of advantages by doing this in Switzerland. Steinbeis M&I works with Helvetische Bank from Zurich in this area. TRANSFER magazine talked to Steinbeis expert Christian Schulte and Dr. Rolf Weilenmann from Helvetische Bank about how this works and what German companies stand to gain from such arrangements.
Hello Mr. Schulte. Why are innovative financial instruments that do not go through a company’s principal bank so important for larger medium-sized businesses?
Christian Schulte: For many of the companies we advise and work with, it’s important not just to be financed by their main bank, but also to build a battery of additional funding options. These provide the company with a certain degree of stability and more balanced financing. And often that has positive impacts for the company, especially when it comes to covenants and interest rates.
What has been happening in Germany with bonds during the last 18 months? What motivates a larger medium-sized business to issue bonds?
Schulte: In 2018 there were 30, and in the first six months of 2019 there were 11 new, smaller corporate bond issues in Germany, mainly from real estate companies and manufacturing firms. We’re talking to a whole series of companies at the moment that are thinking about issuing bonds. A number of things motivate them. They might want to access loans as a financial building block without the involvement of the bank, they might want to fund an acquisition, or they might just want attractive terms. This is where, particularly for German companies, issuing corporate bonds in Switzerland offers certain advantages.
Turning to you Dr. Weilenmann. Helvetische Bank is the market leader in Switzerland for corporate bond issuances of up to 100 million Swiss francs, and it regularly helps German companies issue bonds. What advantages do German companies gain by working with you?
Rolf Weilenmann: Our bonds offer competitive coupons and credit spreads, and the issue costs are low compared to smaller bonds in Germany, so in comparative terms that results in lower costs on the bottom line, even after currency hedging, because the bonds are normally issued in Swiss francs. Also, there are no restrictive financial covenants in bond conditions, and no securities. Furthermore, we fully underwrite the bond issuance before launching the bond (through a guarantee), so the issuer knows it will be a success even before issuing the bond. This approach is particularly suitable for an initial bond issue or for funding acquisitions. The bonds are listed on the Swiss stock exchange in a qualitatively high bond segment, which has an excellent reputation. Alternatively, bonds can be issued privately. Incidentally, this strong reputation is also down to the fact that there’s not been a single default or performance problem since 2010. We underwrote our most recent issues for German companies in the last quarter of 2019, and they were successful. The bonds were issued for Schön Klinik SE (BBB rating, stable, Euler Hermes Rating GmbH), which issued in two tranches (1 3/4% CHF 30 mill. 2019-2022 and 2 1/8% CHF 50 mill. 2019-2024), plus Paragon GmbH & Co. KGaA (without rating), a group of companies in the automotive supply industry and electric vehicles (4% CHF 35 mill. 2019-2024).
Back to you, Mr. Schulte: Steinbeis M&I has been working with Helvetische Bank for some time now. How exactly does this partnership work?
Schulte: It’s first and foremost about approaching and selecting potential companies. We’ve known lots of the companies that come into question for more than a decade, so we look into them accordingly. This involves assessing quantitative and qualitative factors relating not just to the company itself but also to its creditworthiness, irrespective of how long we’ve actually known the company.
What criteria does a company have to meet specifically to qualify for issuing bonds in Switzerland?
Weilenmann: The candidates that come into question for bonds are more established mid-sized companies with a successful business model and a debt financing requirement of at least 20 million euros. Companies generate a turnover of at least 75 million euros and should be able to point to a sustainable cash flow and company equity of at least 25 million euros.
Schulte: We concentrate on companies with a BB or BBB rating, although this doesn’t need to be explicit, i.e. a published rating – it can be sufficient to have an implicit or a non-published rating opinion from the bank.
What are the success factors of a successful bond issuance in Switzerland and how long does it take on average for the process, or how much effort does it take from the perspective of a company to issue bonds?
Weilenmann: The success factors are a robust bond story, which is what you have if the above requirements placed on the company are fulfilled, plus at the very least a “sensible” capital market situation. But for that, finding investors with sensible expectations regarding returns is not so much of a problem because of the huge crisis regarding investments at the moment. The preparation time can often be around three months. But this depends on a variety of other factors, so in the ideal scenario it can take as little as one month or in material terms more than three months. The subsequent marketing phase can take place within a week and the issue proceeds are available to the company two or three weeks later.
Schulte: From our point of view, the time frame for issuing bonds in Switzerland can be described positively – they’re manageable. That also applies to financing made available to companies through institutional funding providers. Typically, this funding is longer-term but it’s the optimal way to round off funding from the bank. Our Steinbeis Enterprise offers regular webinars for companies interested in this issue so they can understand this topic in more detail.
Steinbeis Consulting Center Corporate Finance and Investments (Frankfurt)
Dr. Rolf Weilenmann
Helvetische Bank AG